Chiu Ming Sun v. Michael Ma Wing and Others

HCA007013A/1980

Interlocutory injunction - serious question to be tried - action vexatious and an abuse of process - previous action in which the issues could and should have been litigated - previous action settled - whether a court can make declarations without hearing evidence.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Coram: O'Connor, J. in Chambers

Date of Judgment: 24th December 1980

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JUDGMENT

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1. The plaintiff by inter party summons seeks an interlocutory injunction to restrain the first and third defendants from disposing of any of the proceeds of sale of two letters of Entitlement to grants of land in the New Territories. The defendants oppose the application on a number of grounds, the principal one being that the plaintiff's action is vexatious and an abuse of process, as the subject matter of the action has been litigated and decided in a previous action between the parties.

2. The third defendant is a limited company whose assets, in effect, consisted solely of two Letters of Entitlement to land in the New Territories. The plaintiff realised these Letters were very valuable and decided that if he could obtain them he could sell them at a substantial profit. He entered into an arrangement by which he would purchase all the shares in the third defendant and so obtain its assets. This arrangement provided that his purchase of the shares would be financed by Romulus Company Limited to whom he would then sell the shares. The plaintiff would pay $15 million for the shares but would sell them to Romulus for $83 million. On the face of it the transaction would be very profitable for him. The second defendant is a solicitor, whose services were engaged by the first defendant. The plaintiff signed a transfer and a bought and sold note in respect of the shares in the third defendant. The plaintiff says he signed them in blank and that he was given to understand that this was for the purposes of his transaction with Romulus. The defendants say that when he signed them they were already filled in with the name of the first defendant as transferee. The Letters of Entitlement have since been sold by the third defendant for $113 million. That sum became, effectively, the sole asset of the third defendant company. The issue between the parties in essence was, and is, whether the purported transfer of the shares in the third defendant to the first defendant was valid or not. The plaintiff's case was and is that he remains the beneficial owner of the shares and thus of its assets which were the Letters of Entitlement and later the sum of $113 million for which they were sold. The third defendant has since paid a dividend which went to the first defendant. The $113 million is now held between the first and third defendants. On this application the plaintiff seeks to restrain the first and third defendants from disposing of that money.

3. The plaintiff says that the purported transfer of the shares to the first defendant first came to his notice when the first defendant claimed that he owned the shares in the third defendant, and consequently its assets.

4. The plaintiff brought an action no. 1600 of 1979 seeking a declaration that he was entitled to the shares and for ancillary relief. The first defendant counterclaimed for a declaration that he was the beneficial owner of the shares. That action came on for hearing before Mr. Commissioner Gittens in July 1980. The plaintiff and the first defendant were each represented by leading counsel. The plaintiff's counsel opened his case and examined the plaintiff who was then cross-examined. The action was adjourned overnight, before the cross-examination of the plaintiff had concluded. His credit as a witness had already been virtually destroyed. Under cross-examination he made admissions that were seriously in conflict with statements that had been made in his counsel's opening. On the hearing being resumed his counsel requested an adjournment and indicated that it was likely the parties would come to terms. Subsequently a Memorandum of Agreement was entered into, containing terms of settlement of the action. Its terms conceded the validity of the transfer of the shares in the third defendant to the first defendant. Leading counsel for the first defendant directed the learned Commissioner's attention to the words of the Vice Chancellor in Metzger v. Dept of Health and Social Security ⁽¹⁾, to the effect that a court does not make declarations just because the parties have chosen to admit something, that there are no declarations without argument. He asked the learned Commissioner to make a declaration that the first defendant was the beneficial owner of the shares. Leading counsel for the plaintiff confirmed the Memorandum of Agreement and stated that he did not resist the terms of a formal judgment handed up. The terms of the formal judgment included the declaration that the first defendant was the beneficial owner. Judgment was given in those terms. The formal judgment does not recite that it was made by consent. The plaintiff has accepted payment of $1.5 million under the terms of settlement.

5. The plaintiff now brings a further action in which he seeks a declaration that he is the beneficial owner of the shares and asks that the judgment in the previous action be set aside. He says he is entitled to bring this further action because he is now alleging matters which he did not allege in the previous action. Firstly he alleges that the judgment is void or voidable as both parties, or at least the plaintiff, made a fundamental mistake in believing that the first defendant could enforce a sale to himself of the shares, whereas having regard to a fiduciary relationship between the parties he could not do so. There is on the evidence before me nothing which could be taken to indicate any mistake on the part of the first defendant. In my opinion Mr Commissioner Gittens, sitting as a judge of the High Court could not make an order that was void. An order made by a High Court judge is good until it is set aside. It may be voidable, but cannot be void.

6. The compromise was not entered into in ignorance of any primary relevant fact. The plaintiff at the time judgment was given in the previous action was aware of all the facts which he says point to the inference that there was a fiduciary relationship. So much is conceded by the plaintiff, and indeed is apparent from his pleadings, the opening of his counsel and his evidence in the previous case, together with the affidavits put in by him in the present action. However he says that he did not draw the inference he ought to have from those primary facts nor did he consider the legal consequences to which that inference would give rise. Any mistake involved in the compromise was therefore not attributable to the first defendant, and would not assist the plaintiff unless the first defendant was under a fiduciary duty to make known to the plaintiff the inference that could or should be drawn from the primary facts and the legal consequences. I do not consider it reasonably arguable, on the view of the facts must favourable to the plaintiff, that any duty that might have been owed by the first defendant, went so far. The first defendant is not alleged to have made any misrepresentation nor kept any relevant fact from the plaintiff. The plaintiff's own case indicates that the first defendant had made full revelation of the facts, which the plaintiff says give rise to a fiduciary relationship. Indeed the plaintiff's claim to a fiduciary relationship is based on facts alleged to have been communicated to him by the first defendant. On the plaintiff's own case he made no mistake as to what he conceded. He conceded that the first defendant was the beneficial owner of the shares, and that is what he intended to concede. He was fully aware of all the facts upon which he could assess his position and with the advice of leading counsel he chose to enter into a bargain to terminate the proceedings. What he is now asserting is, in reality, that he is dissatisfied with the bargain because he misjudged his chance of success if he had proceeded with the action. He is really complaining of a bad bargain. That does not affect the validity of the bargain. He obtained exactly what, in full possession of all the relevant facts and with legal advice, he bargained for. It does not seem relevant that if he had drawn an inference open from primary facts known to him, and adverted to a legal consequence, he might not have entered into that bargain.

7. The defendants, in the present application, relying on Kinch v. Walcott ⁽²⁾, say that the judgment in the previous action was not a consent judgment and that therefore it can only be attacked by way of appeal. In my view it is a consent judgment. It was made by agreement between the parties in order to terminate the proceedings. Accordingly it can be attacked by way of fresh proceedings.

8. For the plaintiff it is said that the judgment of Mr Commissioner Gittens can be attacked because it made declarations by consent. Reliance is placed upon Wallersteiner v. Moir ⁽³⁾ and Metzoer v. Dept of Health and Social Security ⁽¹⁾. It is to be observed that the passage from the judgment of Buckley L.J. refers to the practice of not making declarations of right on admissions. It is not suggested that in law, the court has no jurisdiction to make declarations on admissions. The jurisdiction to make declarations is now to be found in Order 15 r.16. The terms of that rule place no limits on the jurisdiction. There does not appear to be any good grounds for not giving the words of the rule their full and fair meaning. The early cases indicated that the courts would be slow to exercise this jurisdiction. The courts as a matter of practice, not because of jurisdictional limitations, often refused to make declarations. In Ibeneweka v. Eobuna ⁽⁴⁾, Lord Radcliffe said:

In Imperial Tobaccu Ltd v. Attorney General ⁽⁵⁾, Ormorod L.J. at page 605a expressed the view that the discretion ought not be fettered by courts laying down guidelines for its exercise and Browne L.J. expressed similar views at 614b. I do not consider the remarks in Wallersteiner v. Moir ⁽³⁾ and Metzger v. Dept of Health and Social Security ⁽¹⁾ were intended to be, or are, in conflict with the passage quoted from Lord Radcliffe. Nevertheless, before making a declaration the court would usually require the conditions set out in Russian Commercial and Industrial Bank v. British Bank for Foreign Trade Ltd ⁽⁶⁾ to be satisfied, and see also Rediffusion (Hong Kong) Ltd v. A.G. of Hong Kong ⁽⁷⁾.

9. In the previous action the declaration the learned Commissioner was invited to make, and did make, did not affect a public interest or the interest of third parties. It did not involve a finding of fraud, to the contrary it avoided the possibility of such a finding being made after a full hearing. The plaintiff agreed to his claim being dismissed and in the circumstances that involved a withdrawal of his allegation that the transfer of the shares to the first defendant was invalid. There was therefore no assertion still being put forward that the beneficial ownership of the shares had not passed to the first defendant. Each party was advised by leading counsel. In those circumstances I consider it cannot seriously be disouted that the learned Commissioner was acting properly within the limits of his discretion in making the declaration. Of course it is true that there was no evidence, save the transfer itself, contradicting the evidence of the plaintiff that he had not transferred his interest to the first defendant. However in the light of all the circumstances the learned Commissioner was entitled to act on the basis that the plaintiff's evidence was not fit to be acted upon.

10. However the main issue on this application is whether the plaintiff's action is clearly vexatious and an abuse of process of the court, that there is no serious question to be tried. The matter arises, of course in the light of the previous proceedings. All the relief sought by the plaintiff in the present action is founded on the allegation that he, not the first defendant, is beneficially entitled to the shares. That was the allegation which was litigated and eventually resolved by a consent judgment in the previous action. The plaintiff says he is entitled to bring the present action because the issue was not fought to the bitter end in the previous proceedings, and the issue of the fiduciary relationship was not dealt with in them, the plaintiff being ignorant of it. He says that the fiduciary relationship gives rise to a new cause of action upon which the court has not given a judgment.

11. As I have already pointed out the plaintiff was, at the time of judgment in the previous action, in possession of all the evidence upon which he bases his allegation of a breach of fiduciary duty. His counsel was also aware of those facts. He does not dispute that, but says he did not appreciate its significance. His failure to appreciate any significance attaching to those facts, was not because of any concealment or misrepresentation by the first defendant.

12. The plaintiff is not assisted by the fact that the issue of beneficial ownership in the previous action was resolved by a consent judgment rather than fought out to the end. It is sufficient that the plaintiff's counsel admitted in the face of the court that the beneficial ownership was in the first defendant and that admission was implied in the order made by the court. In Khan v. Goleccha International Ltd ⁽⁸⁾ Brightman L.J. said at page 266b:

13. Nor is the plaintiff assisted by the fact that the admission was wrongly made. In a passage Brightman L.J. at page 265 cited and approved of the following passage from Hoystead v. Taxation Comr ⁽⁹⁾ at 165:

In Yat Tung Investment Co. Ltd v. Dao Heng Bank Ltd ⁽¹⁰⁾ the following passage occurs in the judgment of the Privy Council in reference to res judicata in its wider sense:

"....... it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings. The locus classicus of that aspect of res judicata is the judgment of Wioram V.-C. in Henderson v. Henderson (1843) 3 Hare 100, 115, where the judge says

The shutting out of a 'subject of litigation' - a power which no court should exercise but after a scrupulous examination of all the circumstances - is limited to cases where reasonable diligence would have caused a matter to be earlier raised; moreover, although negligence, inadvertence or even accident will not suffice to excuse, nevertheless 'special circumstances' are reserved in case justice should be found to require the non application of the rule."

14. Their Lordships went on to approve of the expanded meaning given to the phrase "every point which properly belonged to the subject of litigation", in Greenhaight v. Mallard ⁽¹¹⁾ at 257:

"....... res judicata for this purpose is not confined to the issues which the court is actually asked to decide, but .... it covers issues of fact which are so clearly part of the subject matter of the litigation and so clearly could have been raised that it would be an abuse of the process of the court to allow a new proceeding to be started in respect of them."

15. The order sought in the present action arises out of the same issues as were decided in the previous action, that is the validity of the sale of the shares and where the beneficial ownership of them lies. Those issues properly belonged to the previous action and the plaintiff could have brought forward in the previous action, the breach of fiduciary duty which he now alleges in respect of those issues. He was in possession of the facts and his failure to bring them forward was due to his failure to appreciate their significance. That failure was in no way due to any misrepresentation by the first defendant. Not only could he have brought those matters forward in the previous action but he should have done so. He is now seeking to raise on a somewhat different basis, the same issues of validity of the sale and the beneficial ownership, as were previously decided against him on an admission made on his behalf by leading counsel. In the light of sections 16 and 17 of the Supreme Court Ordinance Chapter 4 I consider regard may be had to section 43 of the Supreme Court of Judicature Act 1925. It is as follows:

It is in the public interest that multiplicity of proceedings be avoided and there be an end to litigation. It is vexatious that a plaintiff should be able to try to avoid a sale by bringing forward one set of allegations and, on judgment being given against him, be thereafter permitted to bring forward a different set of allegations, known to him at the time of the first action, in a further attempt to avoid the sale. Of course there may be circumstances where it is convenient that litigation be instituted to resolve only some of the issues in dispute between parties in relation to some particular matter. Such a case may well fall within the category of "special circumstances" referred to in Yat Tung Co. v. Dao Heng Bank ⁽¹⁰⁾ and see also Brisbane City Council v. Attorney General ⁽¹²⁾. I do not consider the present case to fall within that category. I consider the present action to be vexatious.

16. There is another aspect to the matter. The plaintiff by his pleadings in the previous action, tendered as the issue to be litigated the beneficial ownership of the shares, but only in so far as it depended upon whether or not he had agreed to sell to the first defendant. On his own case he was then aware of facts which would, if properly appreciated by him have enabled him to attack that sale on the further ground that it was invalidated by reason of the first defendant's breach of fiduciary duty. He was advised by leading counsel. Courts are slow to grant declarations. The plaintiff by his counsel consented to the court making a declaration which it would not have made if the facts known to the plaintiff had been brought to its attention. The plaintiff, by not bringing to the attention of the court matters which would almost certainly have resulted in the court refusing to make the declaration, thereby induced the court to an erroneous decision. At that time the plaintiff obviously considered it to be in his interests that the court make the declaration as part of a general settlement of the action. I consider it would be an abuse of process of the court if the plaintiff were now permitted, for his own advantage, to now bring forward those allegations in order to, among other matters, have the judgment in the other action set aside.

17. In considering whether there is a serious question to be tried I have considered the questions of law that arise and the differences concerning issues of fact. I have come to the conclusion that there is no reasonably likely combination of the issues of law and fact upon which the plaintiff could succeed, as it appears his claim is both vexatious and an abuse of the process of the court. That being so it is unnecessary for me to decide what decision I would have come to if I had found there was a serious question for trial, however it might be helpful if I indicate briefly my view on the matter. The money which the plaintiff seeks to have frozen is directly connected with the subject matter of the action. There is no suggestion that the third defendant is a trading company or that it has any other assets. It does not appear that the third defendant would use the money for the purpose of carrying on business. The first defendant is the owner of the third defendant company. He appears to be a person of some substance but not to such an extent as to give confidence that a plaintiff judgment creditor would be able to recover the debt. If the money were not frozen the first defendant could easily put it out of the reach of the plaintiff. The amount involved is $113 million. If the first defendant were inclined to take steps to avoid execution of a judgment that might be given against him, it seems he would have no difficulty in doing so, and the plaintiff would be left with an empty judgment. The plaintiff has recently been in prison in respect of a substantial judgment debt. His counsel is not instructed as to his resources. If he were called upon to pay damages to the defendants on foot of his undertaking, those damages would be assessed at the difference between what $113 million earns on deposit, and what profit the defendants could have made by the use of that money between now and judgment in the action. Interest rates are very high at the moment but not likely to remain at the present level till the trial, which would not take place for a considerable time. The percentage of profit that defendants could make, in excess of what the money would earn on deposit, might be small. However having regard to the amount of capital being $113 million, even if the defendants could only use it to make a profit of 1% in excess of deposit rates, the sum would be $1.13 million over even a twelve month period.

18. I would not have granted an injunction unless the plaintiff could have fortified his undertaking by a bond or security in the value of $3 million.

Representation:

Patrick Fung (Johnson, Stokes & Master) for plaintiff

Martin Lee, Q.C., and Samel Lee (C.P. Lai & Co.) for 1st and 3rd defendants

(1) (1977) 3 ALL ER 444 at 451

(2) (1929) A.C. 482

(3) (1974) I.W.L.R. 991 at 1028H-1029D 1030C-G

(4) (1964) I.W.L.R. 219 at 224

(5) (1979) 2 ALL ER 592

(6) (1921) 2 A.C. 438 at 448

(7) (1970) A.C. 1136 at 1158

(8) (1980) 2 ALL ER 259

(9) (1926) A.C. 155

(10) (1975) A.C. 581

(11) (1947) 2 ALL ER 255

(12) (1978) 3 W.L.R. 299 at 307H to 308G